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Bailout plan for Ireland expected next week

An aid plan for Ireland is likely to come next week, together with, or very shortly after the release of Dublin's four-year austerity scheme, EU sources said on Friday.
/ Source: Reuters

A financial aid plan to help Ireland cope with its battered banks will be unveiled next week, sources from the European Union said on Friday, but experts warned a rescue may not be enough to prevent contagion to other euro zone members.

Ireland's central bank chief has acknowledged the country needs a loan running into the tens of billions of euros to shore up a fragile banking sector that has grown dependent on European Central Bank funds and seen an exodus of deposits over the past six months.

Irish community minister Pat Carey said the government would publish the details of a four-year fiscal plan to save 15 billion euros early next week. EU sources said the financial aid plan for Ireland would be presented at roughly the same time.

Sources have told Reuters Ireland may need assistance of between 45 billion and 90 billion euros, depending on whether it needs help only for its banks or for public debt as well.

A senior euro zone source said it was a good assumption the EU/International Monetary Fund program for Ireland would come at the same time or soon after Dublin publishes its four-year plan.

Banks in Ireland have been largely shut out of market lending due to concerns about their solvency. They are almost entirely reliant on funding from the ECB, which reached 130 billion euros by end-October, plus an extra 35 billion euros from the Irish central bank.

Meanwhile, a poll of participants at a high-level banking congress in Germany showed nearly three quarters believe the turmoil that has shaken Europe's currency bloc for much of the past year would rage on even after an Irish rescue, ensnaring other financially weak countries like Portugal.

"As long as the fundamentals don't improve, the pressure will continue on other countries too," said Daniel Gros, head of the Center of European Policy Studies in Brussels. "Many believe the euro zone is just moving from one crisis to the next."

In Washington, U.S. Treasury Secretary Timothy Geithner disagreed. Asked in an interview on Bloomberg Television whether an aid package for Ireland from the EU and IMF could be the last bailout needed, he said: "I think that is absolutely possible."

There still remains a risk that aid talks could drag out if Dublin and the EU are unable to agree on the conditions attached to financial assistance.